Guidance

The Travellers’ Allowances and Miscellaneous Provisions (EU Exit) Regulations 2020

Published 3 December 2020

Who is likely to be affected

• Travellers arriving in or departing from Great Britain (England, Scotland and Wales) with goods for their personal use in their accompanied luggage
• Businesses engaged in travel retail activities

General description of the measure

At the end of the transition period the government will make changes to the rules for the VAT and excise duty treatment of goods for personal use that are brought into and taken out of Great Britain in travellers’ luggage. The new rules will also cover the provision of duty-free sales to passengers bound for EU destinations at ports, airports and international railway stations and on-board ships, planes and trains on international routes.

Specific rules in relation to travellers carrying goods to and from Northern Ireland will be contained in separate legislation.

There are new rules on allowances for the import of excise and non-excise goods. Incoming travellers will be entitled to the same tax and duty-free allowances, the amount of goods an individual can bring into Great Britain without making a declaration or paying tax/duty, regardless of whether they arrive from the EU or non-EU countries. The allowances for alcohol will be significantly increased compared to those currently in place. Other allowances remain unchanged except for the addition of a new category of tobacco products (tobacco for heating).

The measure also introduces a simplified method for calculating excise duty so that travellers bringing goods in excess of their allowance can make a customs declaration more easily.

In addition, the measure will remove the VAT refund on goods currently provided to non-EU residents who buy goods to take home in their luggage under the VAT Retail Export Scheme. Retailers will also still be able to offer VAT free shopping where they export the goods direct to an address outside the UK.

The measure also contains miscellaneous amendments to existing Statutory Instruments which are consequential on the end of transition period and are related to the rules for travellers.

Policy objective

Currently there are different rules for those travelling to or from the EU, and those travelling to or from non-EU countries. This will have to be aligned following the transition period so that EU and non-EU passengers are treated equally.

The government has a number of objectives relating to passengers travelling with goods:

• minimising disruption at exit and entry points
• minimising delivery challenges as well as expensive and time-consuming infrastructure changes
• minimising revenue loss, particularly via tax evasion or avoidance

This policy focuses solely on the treatment in Great Britain. HMRC has published guidance on GOV.UK providing further information relating to the VAT and excise treatment of goods under the Northern Ireland Protocol.

Background to the measure

The UK left the EU on 31 January 2020 and entered a transition period. In light of this new relationship the government has reviewed the excise duty and VAT treatment of goods purchased by individuals for their own use and carried across borders in their luggage.

Currently these reliefs are largely set out in EU legislation, with different rules for those travelling to or from the EU, and those travelling to or from non-EU countries. This will have to be aligned following the transition period so that EU and non-EU passengers are treated equally. At Spring Budget, on 11 March 2020, the government published a consultation on the potential approach to duty-free and tax free goods carried by passengers. There were a range of views and evidence submitted in response to that consultation and the government has balanced these views alongside the policy objectives set out above, while taking into account the views of stakeholders.

On 11 September 2020 the government published a Written Ministerial Statement by the Exchequer Secretary to the Treasury setting out changes to the treatment of travellers arriving in or departing from Great Britain with goods for personal use in their luggage. A full summary of responses to the consultation was published alongside the Written Ministerial Statement and the policy was included in the latest publication of the Border Operating Model on 8 October 2020.

The government is taking advantage of the opportunity provided by the UK’s new relationship with the EU to enable passengers travelling from Great Britain to the EU to purchase duty-free excise goods once they have passed security controls at airports, ports, and train stations on international routes, in the same way that passengers travelling to non-EU destinations currently can.

To give further effect to the alignment of rules for all travellers, the personal allowances which currently apply to travellers from non-EU countries will also apply to those travelling to Great Britain from the EU. Alcohol allowances will be significantly increased for all passengers to enable them to transport reasonable amounts of alcohol for personal consumption in Great Britain, without having to pay the relevant taxes.

The VAT Retail Export Scheme will not be extended to EU visitors and will be withdrawn for non-EU visitors in Great Britain from 1 January 2021. This means that overseas visitors will no longer be able to obtain a VAT refund on items they buy in Great Britain and take home with them in their luggage. The VAT Retail Export Scheme is a costly relief which does not benefit the whole of Great Britain equally, with current use of the scheme largely centred in London and is prone to abuse and fraud. Retailers will instead continue to be able to offer VAT-free shopping, consistent with international principles of taxation, to non-EU visitors who purchase items in store and have them delivered direct to their overseas addresses. Following the end of transition period, this will also be available to EU visitors.

Detailed proposal

Operative date

The measure will have effect from the end of the transition period, at 11pm on 31 December 2020.

Current law

The current law is contained in the Travellers’ Allowances Order 1994 (S.I. 1994/955), the Value Added Tax Regulations 1995 (S.I. 1995/2518), the Excise Goods (Export Shops) Regulations 2000 (S.I. 2000/645), the Tobacco Products Regulations 2001 (S.I. 2001/1712), the Duty Stamps Regulations 2006 (S.I. 2006/202), the Excise Goods (Aircraft and Ship’s Stores) Regulations 2015 (S.I. 2015/368) and the Excise Goods (Sales on Board Ships and Aircraft) Regulations 1999 (S.I. 1999/1565).

Proposed revisions

These Regulations make changes to existing provisions relating to travellers’ allowances. They align the rules for travellers bringing goods into Great Britain from the EU with existing rules for travellers arriving from non-EU countries.

Additionally, the proposed regulations make changes to existing secondary legislation relating to excise and customs duty and VAT. A simplified computation will be introduced for the Online Service for Passengers which travellers may opt to use to calculate their excise, customs duty and VAT liability in certain circumstances.

The changes make consequential, transitional and savings provisions necessary to reflect the fact that the UK has left the EU.

Additionally, they provide for any reference in or under any enactment to orders made under section 13(1) of the Customs and Excise Duties (General Reliefs) Act 1979 to be read as including a reference to any regulations granting relief from VAT or excise duty to persons who have travelled to the UK on entering the UK that are made under section 51 of the Taxation (Cross-border Trade) Act 2018.

The changes clarify that where a VAT relief applies in circumstances where a person enters the UK, it will also apply where a person enters a control zone.

These Regulations also make miscellaneous and consequential amendments to the Value Added Tax Regulations 1995, the Excise Goods (Export Shops) Regulations 2000, the Tobacco Products Regulations 2001, the Duty Stamps Regulations 2006 and the Excise Goods (Aircraft and Ship’s Stores) Regulations 2015 to reflect the UK’s exit from the EU.

Part 16 (importations, exportations and removals) of the Value Added Tax Regulations 1995 is amended to revoke regulation 131 and associated definitions and to add a condition to regulation 129 that the goods must not be personal gifts on export.

The Tobacco Products Regulations 2001 are amended to remove an exemption for specified tobacco products acquired in an EU member state by a person for their own use from the requirement to carry a fiscal mark when transported to the UK as these goods will now fall within a different limb of the exemption, which applies to relieved goods.

The Duty Stamps Regulations 2006 are amended to remove specific limbs of the exceptions, namely the exception to the requirement for retail containers of alcoholic liquor to be stamped and the exception for goods transported by EU travellers for their own use to the offence of possessing, transporting or displaying unstamped retail containers of alcoholic liquor. This is because, in both cases, these goods now fall within a different limb of the exceptions by virtue of being relieved by the Travellers’ Allowances Order 1994. Various cross-references and geographical descriptors are also amended to ensure that the provisions operate correctly once the UK leaves the EU.

The definition of “entitled passenger” in the Excise Goods (Export Shops) Regulations 2000 is amended and other miscellaneous amendments are made to ensure that the export shop regime operates correctly after the UK withdraws from the EU to permit the supply of goods from export shops without payment of excise duty to travellers on flights, voyages and railway journeys to destinations outside the UK (including those travelling to the EU, with the exception of those travelling from Northern Ireland).

The Excise Goods (Aircraft and Ship’s Stores) Regulations 2015 is amended to provide for the introduction of duty-free excise goods to be loaded for sale on railway journeys to destinations outside the UK (including those to destinations in the EU).

These Regulations also revoke the Excise Goods (Sales on Board Ships and Aircraft) Regulations 1999 as the registered mobile operator regime is an EU facilitation for intra-EU journeys that ceases to have any relevant application in Great Britain after the withdrawal of the UK from the EU. It also makes changes to other legislation in consequence of this.

Finally, these Regulations make transitional and savings provisions in relation to the amendments made to the Value Added Tax Regulations 1995 and to some of the substantive amendments made in these Regulations.

Summary of impacts

Exchequer impact (£m)

Outbound duty-free: extension to EU bound passengers from January 2021

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026
-5	-85	-145	-200	-220	-235

Inbound personal allowances: extension to EU and increasing alcohol allowance from January 2021

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026
negligible	negligible	+5	+5	+5	+5

VAT Retail Export Scheme: withdraw from 1 January 2021

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026
+35	+195	+310	+400	+440	+460

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure is expected to have an impact on individuals and families. Tax and duty-free allowances for tobacco products will remain the same and those for alcohol will be increased. Travellers with goods in excess of their personal allowances will be able to use simplified method for calculating excise duty to make their declarations more easily. This measure is not expected to have a significant impact on family formation, stability or breakdown.

Customer experience is expected to be positively impacted as travellers can now purchase duty-free goods when travelling to EU countries.

Equalities impacts

There are implications of policy changes to goods subject to excise duty. Changes to alcohol duty (for example, increasing the availability of duty-free alcohol and altering personal allowances for alcohol, as above) are more likely to affect older people, as an NHS survey (2019) found 16 per cent of men and 11 per cent of women aged between 65 and 74 drink every day, compared with 4 per cent of men and 2 per cent of women in the 25 to 34 bracket. An Office for National Statistics survey (2017) found 77% of Individuals with an annual income of £40,000 said they had drank alcohol in the last week, compared to 46% of those with an annual income less than £10,000. Men are also more likely to drink alcohol than women.

Due to differences in tobacco consumption, any change to the availability of duty-free tobacco will have a small equalities impact that reflects consumption trends across the adult population. Men are more likely to smoke than women and young people are more likely to smoke than older people. At the regional level there appears to be a North/South divide. Smoking prevalence in London, the South East and the South West is significantly lower than the North East, the North West and Yorkshire and The Humber. 14% of adults in England smoke, in Wales the figure was 15%, in Scotland 16% and Northern Ireland 16%.

It is not anticipated that there will be impacts for those in other groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is expected to have an overall negligible impact on businesses engaged in travel and retail activities in Great Britain. There is expected to be no impact on civil society organisations.

Airside retailers

This measure will have a positive impact on those businesses involved in the sale of alcohol and tobacco products to travellers once they have passed Great Britain security controls at airports, ports, and train stations on international routes. This is because the measure extends duty-free sales to EU bound passengers. Similarly, businesses will be positively impacted by the measure to enable travellers to purchase duty-free goods on-board planes and ships on international routes and on international train journeys. One-off costs may include familiarisation with the changes and could also include updating software or purchasing of new software, as well as training or upskilling staff. However, many airside retailers will already have these systems in place. Continuing costs could include businesses recording more information as a result of this change. This is expected to affect fewer than 100 airside retailers.

Customer experience could see an improvement because interacting with HMRC will be simpler as it will equalise the treatment of travellers regardless of their destination outside of the Great Britain.

VAT Retail Export Scheme refund providers

A small number of businesses engaged in the administration of VAT Retail Export Scheme will be impacted by the withdrawal of the scheme. Some businesses could see a reduction in income or may cease trading if they are based solely in UK. One-off costs may include familiarisation with the changes. There are not expected to be any continuing costs.

Customer experience could be negatively impacted given that this change effectively ceases the opportunity for this business activity in Great Britain.

Retailers

The measure to withdraw the VAT Retail Export Scheme may have a marginal impact on retailers in Great Britain, to the extent they currently offer the scheme to overseas visitors. User data suggests over 90% of the current use of the scheme is in London and Oxford. The VAT savings, and therefore incentives, arising under this scheme are partly offset by the impact of administrative fees paid to refund providers. The independent Office for Budget Responsibility assumes that there will be a behavioural response from the withdrawal of the scheme through a reduction in the number of visitors and a reduction in spending by visitors to Great Britain. The Office for Budget Responsibility estimate that from the 1.2 million visitors who used the scheme in 2019 approximately 20,000-30,000 fewer tourists will visit Great Britain a year because of the change in policy (around 0.07% of all visitors to the UK in 2019). Retailers will also still be able to offer VAT free shopping where they export the goods direct to an address outside the UK. One-off costs may include familiarisation with the changes. There are not expected to be any continuing costs.

Customer experience could see an improvement because interacting with HMRC will be simpler as it will equalise the treatment of travellers regardless of their destination outside of Great Britain.

Operational impact (£m) (HMRC or other)

The overall additional costs for HMRC or other government departments in implementing these changes are anticipated to be negligible.

Other impacts

Justice Impact Assessment

HMRC is undertaking a Justice Impact Assessment and will update this section in due course.

Data Protection Impact Assessment

HMRC has undertaken a Data Protection Impact Assessment and has concluded that a full Data Protection Impact Assessment is not required.

Other Impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be kept under review through communications with key stakeholder groups, including the Joint VAT Consultative Committee and the Joint Alcohol and Tobacco Consultation Group (both of which are made up of a wide range of representatives).

Further advice

If you have any questions about this change, please contact Kim Tilling on Telephone: 03000 510663 or email: kim.tilling@hmrc.gov.uk.